Canadian investors may recognize the strong growth potential of emerging markets, but when it comes to investing in these economies, few are taking full advantage of the opportunity, according to a Franklin Templeton Investments study.
The 2012 investor sentiment survey, which polled 20,623 people in 19 countries, noted only 10% of Canadians expect to invest in Asia while 14% of Chinese residents expect to invest in Canada and the U.S.
“Global uncertainty has left investors cautious with almost four in 10 investors around the world believing their home country represents the best investment opportunity,” said Don Reed, president and chief executive officer of Franklin Templeton Investments Corp. “It’s important for investors to work with a financial advisor and ensure they are well diversified by asset class and geography to limit risk and meet financial goals.”
The study found 54% of Hong Kong residents and 46% of Chinese residents believe their local economy has improved, while only 27% of Canadians feel that way about Canada.
Canadians also lag their Asian counter parts in their outlook for the future of their nation’s economy. While 55% of Hong Kong residents and 52% of Chinese residents say they are optimistic about its future, only 39% of Canadians share this optimism for their economy.
“Asian investors are enthusiastic, while Canadians are much more tempered in their outlook,” said Reed. “Investors in fast-growing Asia have shrugged off skepticism and doubt. Canadians, in comparison, are more suspicious and conservative.”
The findings of this year’s survey are consistent with that of last year’s which noted that a significant proportion of Canadians (38%) think emerging markets—specifically Asian nations—represent the greatest investment opportunity over the next decade.
Canada placed second (25%) followed by developed international markets such as the United Kingdom, Germany and Japan (6%). The United States was chosen by only 3% of respondents.
“Franklin Templeton’s research indicates Canadian investors are keenly aware of the promise and prosperity of the emerging market economies,” said Reed. “These fast-growing economies are expected to drive global stock market returns in the years to come.”
Within the emerging markets, 45% of Canadians who currently have investments picked Asia (including East Asia, South and South East Asia) as the broad region showing the greatest promise.
Twenty-nine per cent picked East Asia, a region that includes China, while 16% chose South and South East Asia, a region that includes India, Indonesia, the Philippines and Thailand.
Nine per cent of investors believe Latin America is the most promising of the emerging markets followed by five per cent of investors that picked the Middle East-North Africa region.
The investor sentiment is in sync with that of advisors, who are particularly bullish on emerging market equities, as found by the recent Q3 Advisor Sentiment Survey by Horizons Exchange Traded Funds.
However, few Canadians are taking full advantage of the emerging markets opportunity within their investment portfolios. A recent report from Morningstar Canada Inc. noted that, as of June 30, about $8-billion was invested in emerging market equity funds in Canada while more than $199-billion was invested in Canadian equity funds.
Dollars invested in emerging market equities account for only 2.3% cent of the value of equity funds owned by Canadians, reports the Investment Funds Institute of Canada. In comparison, emerging market equities account for 9.6% of all equities held by the Canada Pension Plan Investment Board—more than four times as much as Canadian retail investors.
When investors were asked what would make them more likely to invest in the emerging markets, 40% replied “getting more education about global investment opportunities” closely followed by 37% of investors who said “understanding investment options that reduce my risk.”
“Canadian investors need expert advice when it comes to investing in the emerging markets,” said Reed.